Fashion brands fail in transparency and decarbonisation

This summer, an Italian probe uncovered a worrying reality: luxury brands like Armani and Dior have been producing their high-end goods in Chinese-owned sweatshops in Italy, via suppliers. There, workers are forced to work long hours in unsafe conditions for less than the minimum wage. Whilst fast fashion brands have long been criticized for labour exploitation, luxury brands are held to higher standards of craftsmanship, quality and ethics – standards they cite to justify premium prices – yet the same unethical practices are embedded in the luxury system according to a recent Business of Fashion investigation.

Findings from the Business and Human Rights Resource Centre reveal that luxury brands are failing short in protecting workers and addressing forced labour within their supply chains. Of 65 apparel and footwear companies assessed, the luxury sector scored dismally – averaging just 19 out of 100 – with Prada scoring 9, LVMH 6 and Ferragamo 4. However, this is beginning to change as allegations of labour abuses bring the threat of reputational damage and costly legal repercussions, particularly with new legislations like the Uyghur Forced Labour Prevention Act and the EU’s Corporate Sustainability Due Diligence Directive on the horizon.

The fashion industry has been notoriously slow to improve supply chain transparency and accountability, as highlighted by the global organisation Fashion Revolution. Since 2017, its Fashion Transparency Index has ranked the world’s largest brands based on the information they publicly disclose about their supply chains and impacts. The Index’s average score has only increased by 6% over seven years, reaching 26% in 2023, with just two brands – OVS and Gucci – achieving 80% or higher. This year, Fashion Revolution’s report “What Fuels Fashion” shifts focus to supply chain decarbonisation and energy-related data, pressing brands on their commitments to transition away from fossil fuels. The report also emphasises the importance of including workers and suppliers in a just transition to green energy, where power and money are equitably distributed, and injustices stop being perpetuated.

The findings are stark: 32 brands, including luxury names Max Mara, Tom Ford and Longchamp, scored a dismal 0% on this front. Nearly all (94%) fail to disclose how much they are investing in decarbonising their supply chains. Moreover, the report criticises brands for shifting the burden of sustainability onto their financially strained suppliers. Fashion Revolution calls for greater transparency, which is essential for accountability, urging brands to “put their money where their emissions are” by investing 2% of their annual revenue into clean, renewable energy, and supporting workers in the transition. This, they argue, is crucial to addressing both the climate crisis and the persistent issues of poverty and inequality in global supply chains.

As fashion and luxury brands grapple with the challenge of tracing their supply chains from raw materials to finished product, companies like TrusTrace offer solutions. The software enables brands to retrieve data from a network of suppliers, improving the value chain’s impact while ensuring regulatory compliance and risk management. “Mapping out an entire supply chain can be overwhelming, especially for brands just beginning their sustainability journey,” explains TrusTrace’s CEO and co-founder Shameek Ghosh. The technology, which can take up to a year to implement for larger brands, helps streamline the process by identifying key suppliers and prioritise risk commodities, such as cotton for forced labour or wood for deforestation.

The cost of implementation is minimal – just a few cents per product – although this depends on the number of suppliers and purchase orders, yet the return on investment is substantial, with brands seeing benefits within six months. This allows them to better manage their supply chain, mitigate risk and avoid reputational loss. Ghosh emphasises the importance of continuous monitoring and collaboration with suppliers as they get used to the tool and ensuring they are integral to the shift toward better labour practices and lower carbon emissions.

One brand making significant strides is the Danish label Ganni, which last year reduced its total carbon emissions by 7% – a significant achievement in an industry heavily reliant on growth and the exploitation of resources. This success stems from a cross-functional approach within the company and close collaboration with suppliers to identify and mitigate key sources of emissions. In “The Ganni Playbook”, CEO Nicolaj Reffstrup reveals that the brand spent 1.1% of its annual revenue into responsibility initiatives, likely closer to 2% when considering indirect costs. Ganni’s strategy includes expanding its Living Wage initiative to more suppliers, with the goal of covering all Tier 1 suppliers by 2025.

Since 2020, Ganni has been actively tracing its supply chain. Last year, 66% of its product suppliers were audited and continually monitored – a figure they aim to increase to 95% by 2025. Additionally, Ganni is investing in carbon insetting projects, such as installing solar panels at manufacturing sites in Portugal and Italy. For just 25,000 euros, one supplier reduced its carbon emissions by 10 tCO2e in a year, contributing to a 1.2% reduction in Ganni’s Scope 3 emissions. “We have around 35 key suppliers and each work for around 20 or 30 brands,” says Reffstrup. “If a few other brands would do what we do, there could be a really huge impact reduction across the industry.”

Luxury brands are increasingly acquiring stakes in suppliers to secure access to high-quality raw materials, ensure supply chain stability and preserve traditional craftsmanship. For instance, the Prada Group and Ermenegildo Zegna Group joined forces to secure a 15% stake in the Italian knitwear manufacturer Luigi Fideli e Figlio, while Chanel (who has invested in 13 Métiers d’art and 30 manufacturing sites in the last 40 years) and Brunello Cucinelli acquired a joint 24.5% stake in the Italian cashmere supplier Cariaggi Lanificio. Canada Goose also acquired its Romanian knitwear partner Paola Confectii to enhance product margins and supply control. While these acquisitions come with high costs – which brands rarely disclose – cultural frictions and the risk of monopolising key materials, the advantages of improved traceability, efficiency and sustainability often outweigh the challenges.

Owning factories is a rare endeavour due to the important up-front and ongoing investments, from equipment and machinery to staffing, but it provides many benefits. By producing in-house in a Cambodian facility, Australian label Outland Denim has oversight over every stage of the manufacturing process, including labour standards, and ensures living wages while creating opportunities for career progression and skills advancement. Regarding raw materials, the brand has a stringent supply chain strategy, code of conduct and sourcing criteria, according to Erica Bartle, Head of Communications and Impact, and each supplier is displayed on the website to achieve complete transparency. “We consider traceability an ongoing journey and continue to communicate and work with all new suppliers to establish as much transparency as possible,” says Bartle. “We also aim to be a carbon positive brand and have made significant investments into this aspect of our business, but carbon neutrality is currently the most achievable milestone.”